[0:00]Hey everyone, and thanks for jumping back into the macroverse. Today, we're going to talk about the last FOMC meeting and discuss how that is the last FOMC meeting with Powe as chair of the Federal Reserve, assuming everything goes according to plan. If you guys like the content, make sure you subscribe to the channel, give the video a thumbs up and check out my website Benjamin Cowen.com. We do have a sale going on right now for into the cryptoverse, so make sure to check that out. Now, what I want to do in this video is go over some of the things that were said yesterday at the recent FOMC and and talk about what are some of the implications for the future. It's honestly difficult talking about, you know, some of this stuff because it does start to lean into some of the political side of things, which I really try hard not to do. Because everyone believes a certain thing and most people are not open to, you know, other views. But that goes for everyone, right? It's like not just one side or the other, people are very much like set in their ways for the most part. And typically, the only thing that makes people change their views is when certain things play out that directly affect them in a negative way. So, I want to talk about a few things and I'm going to try to not lean too much in the political side of it, but it's also hard because even Powell himself said that this is completely unprecedented. that you basically have the administration going after, you know, people at the Fed. And there's sort of reasons made up for it, but the the argument of course, the real reason arguably is because they're just mad that the Fed hasn't lowered rates. Okay? Now, before we get into that, I I just want to say something that is objectively true. And, you know, you can go verify it if you don't believe me. But under the last administration, the Fed raised rates from 0.25% to 5.5%. Right? So, if if you were to go over to to the sort of interest rates and look at what interest rates actually did under the last administration, right? Under the last administration, they went up from 0.25 all the way up to 5.5%. But because they dropped slightly, because of that little drop there, there's this argument that the Fed is not independent and that they were doing it to, you know, to sort of influence the election. But how can we look at something like this and say that this drop right here influence the election? When for years interest rates were actually trending up. Now, I want you to imagine for a moment what would happen in the current administration if rates were to trend up the same way they did back in 2023, you know, 2022, 2023 and and you know, early 2024. The response would have been a lot different, right? So, the reality is that since Trump has taken office, interest rates have dropped. And after Biden took office in 2021, interest rates went up a lot, and then briefly dropped in late 2024. and then of course they briefly dropped in late 2025 as well. So, I would look at this and if you didn't have a political bias, you would probably look at that and say, yeah, like they're doing an okay job. Yes, did they screw up inflation is transitory? Absolutely, right? Like it inflation was a much bigger deal than they made it out to be back then. And so I'm not going to sit here and pretend like the Fed, you know, is is perfect. They're not. They got a lot of stuff wrong, but ever since that mistake, they've done a pretty good job of of bringing inflation back down and and trying to engineer the soft landing.
[5:07]You could argue that if the Federal Reserve were not having to watch energy prices go up due to geopolitical conflict in the Middle East, they would be cutting rates right now.
[5:40]Just a few months ago, we had several rate cuts priced in for 2026. Now, after the energy crisis began back in February, rate cuts aren't even expected until like late 2027. So, in this case, you know, you have this administration going after the Federal Reserve. But the problem is that what it could what it could look like to future people at the Fed is that if they don't listen to the president, the same thing will happen to them. And that could lead to the erosion of trust in the institution itself. Now, a lot of people are cheering on Powell no longer being the chair. Because the person replacing them obviously would like to lower rates. And I've seen a lot of misinformation out there. One of the big pieces of misinformation is that lower interest rates necessarily lead to lower mortgage rates, but that's actually not true. The Fed directly controls the short end of the yield curve, but it does not control the long end of the yield curve at all. It sort of indirectly affects it because if the Fed lowers rates prematurely, it actually can make the long end of the yield curve go up, not down. So, if you think that the Fed lowering interest rates by itself in a vacuum will cause your mortgage rate to go down or or mortgage rates to go down so that you could refinance, that's actually not always true. You it it can sometimes be true, but if you look at say like, let's look at the 30-year yield. I want you to look at the 30-year yield here. If you look at the 30-year yield, there's been rate cuts, but guess what? The 30 the 30-year treasury has only gone up since rate cuts began.
[7:41]So, you can't just look at the Fed and blame them. You could argue, in fact, that if the Fed had kept rates at 5.5%, the long end of the yield curve would actually be a lot lower by now, which would actually make the housing market more affordable. Now, it might seem counterintuitive, but the reason it makes sense is because as rates stay high, it slows down economic activity. And then the markets then start to price in a recession over the reacceleration of inflation. But as you lower rates before the market truly needs it, the long end goes up and mortgage rates don't come down. So, if you're in the camp of just sitting there saying that the Fed is at fault for not causing your lower mortgage rate, there's a chance there's some truth to that, but for the wrong reason. The mortgage rates could be lower, had the Fed maintained their interest had had maintained the Fed funds rate at 5.5% for a lot longer. But the fact that they started to cut before the markets truly needed it, there was just simply no reason for the long end of the yield curve to go down.
[9:07]Therefore, there hasn't been a great reason for mortgage rates to drop durably, the way the mortgage rates dropped durably is the market starts worrying more about the labor market and a recession then inflation reaccelerating. And as the energy prices go up, then the market starts to worry more about inflation. Okay? So, when you think about the independence at the Fed, I know you can look at the interest rate chart and and sort of gaslight people and say that, oh, they did this to influence the election. But guys, look at what interest rates did before the election for years, right? This was slowing down the economy for years. The economy was still expanding, but it's at a much slower pace and you could argue a lot of that was due to interest rates being so high. So, if we can get past that, and the problem with politics, the reason I don't talk about it, is because there's like never any gray area with a lot of people. It's black or white, and if if you if you're not with them, you're against them. And I I just don't really think that's the way to go. Like there is a gray region. The the Fed can make mistakes, but that doesn't mean that everything they do is is political, because if it is, why were they raising rates throughout all of 2022 and 2023 and even part of 2024? because inflation was high, that's that's the reason why. So, in this case, I I want to I want to remind you guys of something. Do you remember when Gary Gensler stepped down on January 20th? I want you to think about this. January 20th, Gensler steps down. Was Gensler great for the crypto industry? I don't really think that, you know, I mean I I look at what they they went after back then and it felt like they they went after legitimate players that were actually trying to provide value to the industry. And ignored the fraud and and not completely, I mean, I think they did go after some fraudulent actors, but there were a lot of fraudulent actors that were able to slip through the cracks. And there was this blind spot for them. They completely missed so much of the fraud that existed in the space and I think spent too much time worried about the people that were trying to do things the right way. And so Gary Gensler steps down on January 20th of 2025 and everyone celebrates. Right? Everyone celebrates when he steps down. Bitcoin was at 109K. Now look at the market. What do you think happened, right? People celebrated, but crypto has only gone down since then for the most part, with the exception of briefly sweeping the high for a few months.
[11:55]In fact, if you value Bitcoin in terms of gold, Bitcoin actually topped against gold the month about one month before Gensler resigned. So, since Gary Gensler left office, here it is, even even the lower high. Since he left, Bitcoin is down 59% against gold. Okay? You can try to spin this into a political narrative if you want to, but the reality is this. Gensler left, it then opened the flood gates to meme coins, to presidents launching meme coins, to influencers launching meme coins, to basically everyone launching meme coins without fear of any repercussions. So what that did is it led to this massive misallocation of capital in the cryptoverse. And it led to a cycle where Bitcoin didn't really ever reach euphoric conditions. Bitcoin had a top at 126K, but it was never truly a euphoric moment for the cryptoverse. Social interest only ever trended down. And if I pull this up on on the website, you'll see what I'm talking about. So, what I'm going to show you is the social interest, right? So, if you look at the social interest, you can see that it's just been trending down for years. Why is that? And why has it been still dropping even after Gensler left office right here in January 2025? It's because people lost faith in the industry itself. Not everyone, like I mean, obviously there's still a lot of people that believe, but there's a lot of people that lost confidence in the industry itself because they saw the industry for what it became. When you first got interested in crypto, did you get did you get interested in it because the Feds were at the conferences and the presidents were were tweeting about it? No, you got interested in it because it was not the cool thing. It was not the thing that was accepted everywhere, and it wasn't something that was embraced at the government level. I would say crypto was a lot better off before governments got involved. Essentially what happened is people cheered against, they sort of looked at tradfi and said, you know what? We need a way out of this, and then there's Bitcoin. They looked at at monetary policy and then Bitcoin's over there, and Bitcoin's great, but then everyone comes in and tries to use Bitcoin to enrich themselves in other ways. That that was to launching meme coins, right? Even the miners, which are doing a necessary job, are just bleeding to Bitcoin. They're just bleeding to Bitcoin for the most part, and the miners that are not bleeding to Bitcoin are the ones that pivoted to AI. Okay? The crypto companies themselves bleed to Bitcoin. I think the treasury companies eventually will also bleed to Bitcoin. And the reason is not a conspiracy theory. It's just because Bitcoin is the best asset within crypto. It represents the best of the industry. And everyone else is trying to enrich themselves by latching on to that narrative, by launching meme coins, by launching other companies that are trying to take advantage of that. And that's why eventually they all bleed to Bitcoin. Because Bitcoin represents the best of the industry. And so what happened? Why did social interest dry up? Because every time someone launched a meme coin, retail couldn't help themselves. They had to go buy it, right? They had to go buy it because they were fearful, they were going to miss out. And every time they went to buy it, they got rugged, and they went to buy it again, and they get rugged again. And you look back all these years later, and you see, you know what? All these meme coins that were launched, including the ones launched by the President of the United States, are down a ton, you know, like they're down a ton and we're just supposed to pretend like that's okay. It's not, right? It's not, it's not okay. It's not okay that that that that happened, and then the industry just kind of like celebrates it in a way and and turns a blind eye to what actually happened. The the industry was looted. That is why you never that's one of the reasons you never had a rotation in alt coins. Now, we could say it's because of monetary policy. It could could that be the reason there was never a rotation into crypto? That's been my narrative for a long time. But I've also said, you know what? AI still had a great bull market. AI still was euphoric. It was operating under the same monetary policy conditions crypto was. So why is it that AI and the S&P and the NASDAQ were able to do really, really well while crypto just keeps on bleeding out? Why is that? Well, the reason is because there just hasn't really been that great use case in crypto. Right? Developers left crypto to to go to AI because the real developers in the space that were actually trying to improve the space were ignored. And people didn't care about what they were working on, they only cared about the meme coins that were being launched. And because of that, now the space is being punished. Is because for the entire cycle, we focus on ETFs and strategic Bitcoin reserves and and meme coins. None of that stuff fundamentally makes the space better. All it does is try to get more capital into the space. It does not make the space better in and of itself. So, that's a big issue and because of that, the market hasn't gone anywhere for years now. Right? Bitcoin's trading at 76K, you know, it was at 76K in November 2024. And I will tell you a sobering reality is this, the Bitcoin divided by gold chart. Now, I want you to think about how many times you've made fun of the gold bugs over the last decade. Well, guess what? Just a few months ago, Bitcoin was at the same valuation against gold that it was at in 2018. In 20, 20 late 2017 even. Late 2017. So you're talking about nine years where Bitcoiners were dunking on gold bugs, but after all this time, Bitcoin was the same valuation against gold that it was nine years ago. What changed? What changed here? Like we were going up and then this happened, what changed? Monetary policy? But also, you could argue that people lost faith in the industry itself because we stopped focusing on what was important. And that's Bitcoin, and people focused on meme coins. So, when Gensler left, it just opened the flood gates to fraud. That's what happened, right? It opened the flood gates to fraud and made people feel like they could launch anything they wanted to, without fear or repercus of any repercussions. And so when you look back on it, all these years later, you see, you know what? People celebrated when Gensler left, but it actually marked a turning point in the industry. What if the same thing is about to happen now? But with the Fed. People celebrate because Jerome Powell's no longer chair, and we're going to have a new chair who's going to want to cut rates. The problem is that the new Fed chair is going to face the same issues. He's going to want to cut rates, but you have rising energy prices. And there is a risk, and I I hope this does not happen. There is a risk that they cut prematurely, and it leads to another wave of inflation. The other risk, which I think makes a little bit more sense, is that because inflation is so is going up again, it's going to make it so the Fed can't cut. And so by the time they actually do cut, it'll be too late. The labor market is already somewhat weak. There's no net new job creation essentially, but the reason it doesn't it, the reason it feels bad to people is because if you don't have a job, it's hard to find one. But if you have a job, there's a lot of people that are able to keep those jobs because initial claims are low, layoffs are low. That hasn't really picked up yet, but all it takes is for that to pick up for this entire cycle to change. So, what I'm curious about is like Bitcoin, when Gensler left, people celebrated and you look back and you're like, yeah, you know what? He did a lot of things we didn't like and it didn't really make the most amount of sense, but the replacement, I mean, basically the alternative was the rampant fraud that everyone knows about today. So, when I look at the stock market, I don't think this is quite the same. I I think there's a chance that the new Fed chair will be able to do the right thing. You know, I think there is a I I he's against just money printing, which I think is is a good thing. Um, so there's a chance there that I think there's a higher chance that he could do the right thing, um, than than, you know, than what happened with crypto when when Gensler left. But I do wonder, are we going to look back at this moment in a couple of years and realize the markets were better off with Powell than without him? And that, I think, is the concern that we have to think about. Because when this played out with with, uh, the SEC, everyone cheered, thought it was a good thing, and it it actually wasn't. You know, it wasn't a good thing for the markets. That's what I'm thinking about. Now, I'm sure people are going to disagree with some of this, and that's fine. Maybe maybe I'm wrong. You know, maybe maybe there's not a reason to worry. But when you look at a chart like this, if this is right, what if interest rates do come down? And they start to come down aggressively in 2027 and say 2028. Maybe they go down, but for the wrong reason. Right? Maybe they go down because the recession finally arrives after all these years. Maybe that's how it plays out. And a lot of times, historically, when the when interest rates go down, they go down in a recession, right? So, sometimes they actually correspond to recessions. And the reason is because they cut, but they wait too long to cut. But you can't blame them because if they cut too early, they got to deal with rising energy prices. This is not an easy game. We can sit here and be armchair economists all we want to, but I don't envy the job they have at the Fed. It's a difficult job. It's a very difficult job and how do you how do you cut rates with energy prices spiking? How do you do it? Yeah, you just run the risk of inflation taking off again and having an even bigger issue than we had the first time.
[24:33]So, the risk is that markets lose trust in the institution itself. Because if it just operates as say a cabinet of the of the executive branch, if it's just like an extension of the executive branch, then can you truly expect them to make the right decisions based on what is truly needed? Or are they going to make decisions based on what will happen, how that will improve things in the very, very short term, but very, very much damage the economy over the long term? In the short term in 2020 and 2021, printing money made a lot of sense to a lot of people because the alternative was kind of scary. But then you look back and you're like, you know what? A lot of this stuff, it was just a massive, you know, massive bubble. I mean, think about it. Look at a lot of individual stocks. We talked about this before, like look at Target. I'm sure some I'm sure a lot of you guys have have shopped at Target before. Look at where it was in 2020. Right here.
[25:44]Guess where it just went below. The pandemic low. Money printing can solve issues in the short term, but it doesn't always solve like underlying issues. And things can unwind. Right? This is not the only example. This is not the only example. I mean, after sweeping the pandemic low, historically it's been a really bullish thing, um, for a lot of assets. And you know, like Dow's another example, right? Where like after, and I was pointing this one out, you know, last year, it swept the pandemic low. But what do you notice? Printing printing money can fix short-term issues, but over the long term, doesn't really change anything. So, I think that's the concern here with with what happens here with the Fed. And listen, Powell did an okay job. I think he did a fairly good job except for the whole inflation is transitory thing. That's my only that was the only thing. And if you look at the business cycle chart that we've talked about on many occasions, right? We've talked about this chart a lot of times, and again, you know, it it's a good way to visualize the business cycle. Powell has done a good job of trying to engineer a soft landing, right? Trying to engineer this soft landing. And it's it's worked so far. The problem is that the plane hasn't landed, right? The plane has gone from 40,000 ft to 20,000 ft. But the problem is it's still 20,000 ft off the ground, where business cycles end. And so, how do we go from 20,000 ft to the runway? I think with Powell, there was a decent chance of a soft landing. I think they're doing the best they can. With the new chair, that introduces a lot of uncertainty, and of course, it could very it could very well lead to a hard landing. And my base case, I know it's going to be hated, right? And I've said this many times. My base case is that the business cycle will end with a recession. It will, in my opinion, that is the way it will play out, and I think it will it'll it'll happen, uh, within this current administration. It'll happen within the current administration, um, and so that means basically within the next couple of years or so. Is is the way this will likely play out in the end. And it's already playing out, right? You could argue that it doesn't even matter who the Fed chair is, maybe it doesn't matter, maybe you get a hard landing anyways, but so far they've done a pretty good job of engineering a soft landing. That could change if people start to lose faith in the institution itself. Um, so, just think about this because, you know, the markets when they do turn and interest rates drop too late because of an inflationary artificial inflationary spike, that's historically how the cycles end. And and this stuff's been playing out for years. Alt coins have been bleeding to Bitcoin, so higher risk assets have been bleeding to lower risk assets, right? Alt coins have been bleeding to Bitcoin. Now look at at Bitcoin against gold. So alts have been bleeding to Bitcoin. Bitcoin has been bleeding to gold. Stocks have been bleeding to gold. It's all been happening for years, right? For years, this stuff has been playing out. And normally when the stock market breaks down against gold from these levels, it does eventually correspond to recession. Now it can bounce around for a few months and make people think that it's not going to happen, but I think it probably will. That doesn't mean the stock market can't go higher in the Dotcom era. It did go higher for many, many months, um, when you look at the S&P and too fractal. But it's hard to look at this and not just assume that, you know, it'll end the same way it always is. Like I just don't think this time is different. I I think we're going to look back and realize, you know what? It's basically the same, but it's just hard to realize it when you're in it. On January 20th, when people were celebrating, the pro crypto administration and Gensler leaving, imagine telling them that Bitcoin would barely go higher after that. And then would drop and go well below those levels. They would have said you're crazy. Here we are. I think you could say the same thing about other markets, too. So, let's give it some time, let's see what happens to the Fed. I hope I hope I'm wrong. I mean, I really do. I I don't I don't really want to go into that future that we talked about, but when Gensler left, I also didn't want to go into the future that we're in right now with crypto and yet here we are. Right? Like just because we don't want it to happen, doesn't mean it won't. So, those are my thoughts about about this whole mess that we're going to potentially face is that sometimes people cheer on the very things that actually marked turning points in the markets. And it only becomes obvious years later. So I think we're going to look back. I think in 2028, we're going to look back and realize the markets were actually better off with Powell than without him. If you guys like the content, make sure you subscribe to the channel, give the video a thumbs up, and again, check out Benjamin Cowen.com. I'll see you guys next time. Bye.
